Corporate fraud is characterized by a clear trend towards organization and gang, as well as hidden and complex methods that are difficult to detect. Therefore, how to curb corporate fraud has always been a hot topic of academic concern. Taking China’s A-share listed companies from 2013 to 2021 as the research sample, from the perspective of the impact of top management team faultlines on the internal and external aspects of subgroups, this paper uses the partially observable Bivariate Probit model to study the impact of “small gangs” in top management teams on corporate fraud, the moderating effect of the company’s internal and external environment on the two, and the different roles played by top management team faultlines in different fraud situations. The findings are as follows: (1) As the degree of top management team faultlines increases, the tendency of corporate fraud increases significantly, and the probability of fraud detection decreases significantly. (2) In terms of internal environment, the above results are more significant in enterprises with weaker entrepreneurship and a lower degree of digital transformation. (3) In terms of external environment, when the degree of marketization and wealth gap in the region where the enterprise is located are lower, the negative effect of top management team faultlines on corporate fraud is stronger. In addition, this paper finds that the relationship between information disclosure fraud and fraud committed by the stock exchange is more significant after distinguishing the type of fraud and the inspection unit. This paper is of great significance in explaining the causes of organizational and hidden corporate fraud, as well as the black-box mechanism of top management team faultlines, enriching the research on top management team faultlines and corporate fraud. It provides policy reference and a decision-making basis for enhancing the construction of top management teams and improving the inspection systems and methods of regulatory authorities.